What is Workforce Housing?
Updated: Oct 14, 2022
And, Why is it KeyCity Capital's Real Estate Focus?
Our investors sometimes ask what the difference is between affordable housing and workforce housing. It’s easy to think that they are one and the same, but there is an important distinction and some very important reasons why we invest in workforce housing.
The difference between workforce housing and affordable housing
Workforce housing targets blue collar workers that are not in need of government assistance to supplement their household income to rent. Workforce Housing properties typically cost less than 40% of the AMI (Area Median Income), are clean, comfortable, and have basic amenities like laundry and common areas and standard finishes like hard surface flooring and countertops.. Affordable housing is the sector that targets those in need of government assistance (section 8) for housing. The rent amount is set by the government, not tied to the local media income, and the properties have the base level of finishes and amenities.
Why we focus on workforce housing
KeyCity Capital targets workforce housing for a couple of reasons. First, 70% of America falls within 10% of the median household income of a given market, right where workforce housing is positioned. That means workforce housing properties always have a waiting list of potential renters. Also, during a strong market and a strong economy, you're going to have blue collar workers living in your product. But when the economy fails -- like during the subprime crisis of 2007 and 2008, the interest rate spikes during the 80s, the dot com bust during the late 90s, or even as far back as the Great Depression -- the blue collar workers may be forced to move out of that product and move into lower income housing. However, they are quickly replaced by lower tier white collar workers who need to downgrade from A class, or even college graduates that are starting new jobs. 70% of America needs that B and upper C class housing, which is exactly what we target. You may see a little bit of a turnover during an economic shift, but you don't see the high vacancy rates that you see in the A class product, and you don't have the difficulty collecting rent that you do in the lower C and the D class housing. Workforce housing is a product that is recession-proof, and it has the most demand versus supply (demand actually outpaces supply since the 1970s by at least 30% decade over decade). It is a product that no matter the economic situation, no matter the economic environment, is always at a very, very high demand. You may just have a change in your tenant base. So if you can weather through that small change in tenant-base that typically takes 30 to 60 days when you see the economy change, then you're going to have a product that no matter the situation, has high demand, high occupancy rate, and high collection rates.
Workforce housing is a product that is recession-proof, and it has the most demand versus supply. It is a product that no matter the economic situation, no matter the economic environment, is always at a very, very high demand.
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